Pausing Silver Production to Reduce Aisc and Increase RevenueMon, 10/22/2018 - 10:00
Q: How does Americas Silver mitigate the risks related to fluctuations in silver prices?
A: Silver tends to follow gold and when gold is trading in a defined range, silver trades a little more aimlessly than other metals. When gold goes down, silver tends to slide even further, and when gold rallies, silver rallies much more on a relative basis. There is one primary reason for that, which is that silver tends to be a secondary or tertiary product. There are actually very few mines that exclusively produce silver. This means that a copper mine, for example, would not be shut down just because silver prices have dropped, so there is no real supply response either on the upside or on the downside. When gold moves, it is certainly a good sign for silver because we have seen that, although silver moves up more slowly, it moves much higher in relation to the baseline price.
Q: How did Americas Silver Corporation use a diversified portfolio to reduce AISC and increase revenue?
A: We have taken a different approach than most of our competitors over the last few years. In 2012, our assets’ combined production was about 3.5 million ounces of silver, a few million pounds of copper, 5 million pounds of lead and 10 million pounds of zinc. Now, we are producing approximately 2 million ounces of silver, around 45 million pounds of zinc and 35-40 million pounds of lead. We still have all that silver available to be mined but we have chosen not to produce it given less-than-optimal silver prices.
Some of our competitors have been mining their highest-grade silver ores to survive in this price environment. Some miners in Mexico are producing at an AISC of US$14-$16, while ours in 2018 will be around US$0/oz because we have all the zinc and lead by-product revenue. Our reserve grades will continue to rise because we are now mining our lowest-grade silver ores. We are very lucky that we have both high and low-grade base metals, and high and low-grade silver deposits, so we can be more flexible in reacting to prevailing market prices. In 2012, we were the highest-cost producer in the silver industry at US$33/oz, while in 2018 we will come in between -US$1-4/oz, a reduction of over 90 percent.
Last year, on the fringes of the San Rafael mine, we discovered irregular occurrences of silver and copper, so we stepped out and drilled it. Through this program, we drilled 61.4m of 412g/t silver equivalent, which is about 5g/t in gold equivalent. This high-grade silver deposit is called Zone 120. Our existing resources in the area cover a footprint of 1,100ha and within that area we have discovered 170 million silver equivalent ounces. The question remains whether or not we should build and produce from the mine today given our bullish view of future silver prices.
Q: With Americas Silver sitting on the Zone 120 resource, how are your exploration plans continuing?
A: We love our land position and are convinced there is more to be found in the district. While Zone 120 continues along the development pipeline, our geologists are taking time to reconsider the potential of the district as a whole. They have recently recompiled and reviewed historic data and have come up with some very exciting targets. There is still a lot of early stage work to be done but we are sure the next discovery is waiting for us.
Right now, I believe there is nothing better than what we are doing here because we do not need to issue any shares to grow our reserve base. Last year, we spent about US$2 million and added 20 million silver equivalent ounces. This means our per share value of silver continues to go up and we continue to generate free cash flow.